Easy Financing Through Bridging Loans

As you might have probably thought, bridging loans are a short term funding option. The reason why the name bridging is used is because the loan will be used in merging the gap between a debt coming due. In short, the use of bridging loans or bridging finance as is commonly referred is a way of acquiring financing in a short timeframe and for a pressing matter. In most cases the pressing matter that will necessitate a bridging loan is a mortgage.

Just how does this loan work?

A bridging loan is used to help a person be able to complete a property purchase prior to them selling their existing property. This is common when shifting properties to move to a much larger house or moving to a new location. This is the reason the loan is of invaluable help as without it, a new property purchase would not be possible.

Although the financing that is made through the loan is of much help to the person in need, the loan is somewhat expensive when compared to normal loans as the time that the funding is required is short and of great importance. The bridging financing is said to be quite expensive as the rate of interest the money accrues is quite high.

• Where else could you expect to see the use of bridging loans in high numbers?

• When there are gaps in completion dates of a property

• When buying at an auction without cash at hand or the financing necessary to buy

• When needing to sell a property quickly after renovation.

Following the financial crisis that brought the world economy to its knees, banks are quite reluctant to lend as most of the customers are seen as high risk vendors. To avert this, use of bridging loans is becoming quite poplar as the money is only lent for a very short period and it comes back with quite a handsome interest.

For most lenders that qualify for the normal loans, it is advisable to take these loans as the alternative that is bridge financing is a very expensive affair. Income institutions, a monthly fee of 1.5% per month is charged, making the sum total be 18%, not to mention administration fees.

Among the people who are recommended to make use of the bridge financing include property owners, property developers and a person purchasing a property at an auction which needs proper financing. Some wealthy borrowers who are asset rich and who want to go straight and start lending can also get the financing.

Among the instances where bridging is recommended include: buy to let properties where the income amassed by the property can be used in paying back the high interest. Property investment is also a good way to look at this type of financing. In instances where banks take too long to approve a loan, especially when high amounts are required, bridging loans become the next best available course of action.

In as much as the bandwagon of the people advocating for bridge financing is concerned, it seems to be a fast growing market segment. It is however advisable that prior to signing up for this form of financing, a thorough evaluation of the exit strategy to use is made. Lack of an exit strategy means that you risk foreclosure of the property acquired as you might be unable to meet the monthly repayments of the loan.

Be sure to ask of the different alternative lending options from your financial service provider rather than sign up for the first available financing that is presented to us. If you have never done it, it is advisable to take some time to think through the bridging loans proposal and enquire about the minor details such as the cost of administration fees.

What Does It Take to Get a Corporate Finance Job?

If you aspire to work in the corporate finance department of an organization, you are part of a team that is involved with collating data that form the solid basis for making capital investment decisions of a company. Some of its primary tasks include supplying figures that will support or oppose investment proposals. A corporate finance job entails management of company assets and liabilities, financial forecasting, inventory control, budgeting, and auditing.

The two key functions of corporate finance include:

  • Accounting – this involves recording of the day-to-day transactions of the company. Its tasks include payroll, tracking of company expenses, computation of revenue and balancing of the company’s accounting books.

  • Finance – this is concerned with the management of the company’s assets, liabilities, and investments. It is also responsible for the monitoring of the company’s financial performance and analyzing its revenue and expenses in order to ensure that the company’s capital is used in the most effective way possible.

Finance and accounting may assume different roles in an establishment, but they are geared towards a common goal which is to maximize the company’s potentials for financial advancement.

Primary Requirements of Finance and Accounting Jobs:

Knack for Numbers

Finance and accounting professionals breathe and eat numbers everyday in their professional lives. You should be good in mathematics in order to become an effective member of the finance department.

Strong Analytical Skills

Jobs in finance involve forecasting, analysis, and problem solving. They require you to understand patterns of the company’s expenses, debts, receivables, cash flow and profits. These are all represented by numbers. You need to put them together to produce a sound basis of the company’s business decisions.

Attention to Details

This is highly necessary because it can help to optimize the company’s performance in the management of its finances. The company relies on the numbers you provide as its basis for formulating business plans and decisions.

You should be able to spot errors, unusual costs, and unnecessary expenses. These are important things you can bring to the attention of top management for appropriate action.

College Degree

A degree in finance or accounting is the basic requirement for a career in corporate finance. If you want to stand out in the profession, you may proceed to advanced studies.

A masters’ degree in business administration or a certification in CPA or CFA will help to give you the best in a rewarding career. These will make you more attractive to companies and increase your chances for employment or promotion.

These are some of the essentials for getting a career in corporate finance. Have them and you will discover a world of business and corporate opportunities.

How Asset-Based Loans From Commercial Finance Companies Differ From Traditional Bank Loans

When it comes to the different types of business loans available in the marketplace, owners and entrepreneurs can be forgiven if they sometimes get a little confused. Borrowing money for your company isn’t as simple as just walking into a bank and saying you need a small business loan.

What will be the purpose of the loan? How and when will the loan be repaid? And what kind of collateral can be pledged to support the loan? These are just a few of the questions that lenders will ask in order to determine the potential creditworthiness of a business and the best type of loan for its situation.

Different types of business financing are offered by different lenders and structured to meet different financing needs. Understanding the main types of business loans will go a long way toward helping you decide the best place you should start your search for financing.

Banks vs. Asset-Based Lenders

A bank is usually the first place business owners go when they need to borrow money. After all, that’s mainly what banks do – loan money and provide other financial products and services like checking and savings accounts and merchant and treasury management services.

But not all businesses will qualify for a bank loan or line of credit. In particular, banks are hesitant to lend to new start-up companies that don’t have a history of profitability, to companies that are experiencing rapid growth, and to companies that may have experienced a loss in the recent past. Where can businesses like these turn to get the financing they need? There are several options, including borrowing money from family members and friends, selling equity to venture capitalists, obtaining mezzanine financing, or obtaining an asset-based loan.

Borrowing from family and friends is usually fraught with potential problems and complications, and has the potential to significantly damage close friendships and relationships. And the raising of venture capital or mezzanine financing can be time-consuming and expensive. Also, both of these options involve giving up equity in your company and perhaps even a controlling interest. Sometimes this equity can be substantial, which can end up being very costly in the long run.

Asset-based lending (or ABL), however, is often an attractive financing alternative for companies that don’t qualify for a traditional bank loan or line of credit. To understand why, you need to understand the main differences between bank loans and ABL – their different structures and the different ways banks and asset-based lenders look at business lending.

Cash Flow vs. Balance Sheet Lending

Banks lend money based on cash flow, looking primarily at a business’ income statement to determine if it can generate sufficient cash flow in the future to service the debt. In this way, banks lend primarily based on what a business has done financially in the past, using this to gauge what it can realistically be expected to do in the future. It’s what we call “looking in the rearview mirror.”

In contrast, commercial finance asset-based lenders look at a business’ balance sheet and assets – primarily, its accounts receivable and inventory. They lend money based on the liquidity of the inventory and quality of the receivables, carefully evaluating the profile of the company’s debtors and their respective concentration levels. ABL lenders will also look to the future to see what the potential impact is to accounts receivable from projected sales. We call this “looking out the windshield.”

An example helps illustrate the difference: Suppose ABC Company has just landed a $12 million contract that will pay out in equal installments over the next year, resulting in $1 million of revenue per month. It will take 12 months for the full contract amount to show up on the company’s income statement and for a bank to recognize it as cash flow available to service debt. However, an asset-based lender would view this as receivables sitting on the balance sheet and consider lending against them, depending on the creditworthiness of the debtor company.

In this scenario, a bank might lend on the margin generated from the contract. At a 10 percent margin, for example, a bank lending at 3x margin might loan the business $300,000. Because it looks at the trailing cash flow stream, an asset-based lender could potentially loan the business much more money – perhaps up to 80 percent of the receivables, or $800,000.

The other main difference between bank loans and ABL is how banks and commercial finance asset-based lenders view the business’ assets. Banks usually only lend to businesses that can pledge hard assets as collateral – mainly real estate and equipment – hence, banks are sometimes referred to as “dirt lenders.” They prefer these assets because they are easier to control, monitor and identify. Commercial finance asset-based lenders, on the other hand, specialize in lending against assets with high velocity like inventory and accounts receivable. They are able to do so because they have the systems, knowledge, credit appetite and controls in place to monitor these assets.

Apples and Oranges

As you can see, traditional bank lending and asset-based lending are really two different animals that are structured, underwritten and priced in totally different ways. Therefore, comparing banks and asset-based lenders is kind of like comparing apples and oranges.

Unfortunately, many business owners (and even some bankers) don’t understand these key differences between bank loans and ABL. They try to compare them on an apples-to-apples basis, and wonder especially why ABL is so much “more expensive” than bank loans. The cost of ABL is higher than the cost of a bank loan due to the higher degree of risk involved in ABL and the fact that asset-based lenders have invested heavily in the systems and expertise required to monitor accounts receivable and manage collateral.

For businesses that do not qualify for a traditional bank loan, the relevant comparison isn’t between ABL and a bank loan. Rather, it’s between ABL and one of the other financing options – friends and family, venture capital or mezzanine financing. Or, it might be between ABL and foregoing the opportunity.

For example, suppose XYZ Company has an opportunity for a $3 million sale, but it needs to borrow $1 million in order to fulfill the contract. The margin on the contract is 30 percent, resulting in a $900,000 profit. The company doesn’t qualify for a bank line of credit in this amount, but it can obtain an asset-based loan at a total cost of $200,000.

However, the owner tells his sales manager that he thinks the ABL is too expensive. “Expensive compared to what?” the sales manager asks him. “We can’t get a bank loan, so the alternative to ABL is not landing the contract. Are you saying it’s not worth paying $200,000 in order to earn $900,000?” In this instance, saying “no” to ABL would effectively cost the business $700,000 in profit.

Look at ABL in a Different Light

If you have shied away from pursuing an asset-based loan from a commercial finance company in the past because you thought it was too expensive, it’s time to look at ABL in a different light. If you can obtain a traditional bank loan or line of credit, then you should probably go ahead and get it. But if you can’t, make sure you compare ABL to your true alternatives.

When viewed in this light, an asset-based loan often becomes a very smart and cost-effective financing option.